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Overview

Morpho Vault V2 supports two types of fees that are paid to designated recipients through share minting:
  • Performance fee: Charged on vault profits (interest earned)
  • Management fee: Charged continuously based on total assets
Fees are denominated in WAD (1e18), where 1e18 represents 100%. Both fees are paid by minting new shares to fee recipients rather than transferring assets.

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Fee limits

The protocol enforces maximum fee levels: 
MAX_PERFORMANCE_FEE = 0.5e18;     // 50% maximum
MAX_MANAGEMENT_FEE = 0.05e18 / 365 days;  // 5% per year maximum
Source: ConstantsLib.sol:10-11

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Performance fee

The performance fee is taken on distributed interest (profits after applying the max rate).

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Setting performance fee

function setPerformanceFee(uint256 newPerformanceFee) external;
1

Submit through timelock

The curator must submit the change through the timelock mechanism.
2

Wait for timelock

Wait for the timelock period to expire.
3

Execute change

Call setPerformanceFee() to apply the new fee. Interest is accrued first.

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Example

// Set a 20% performance fee
vault.setPerformanceFee(0.2e18);
Requirements:
  • Fee must not exceed MAX_PERFORMANCE_FEE (50%)
  • Fee recipient must be set if fee is non-zero
  • Interest is accrued before applying the new fee
Source: VaultV2.sol:482-492

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Performance fee calculation

The performance fee is calculated on interest earned: 
// Interest = newTotalAssets - _totalAssets (capped by maxRate)
uint256 interest = newTotalAssets.zeroFloorSub(_totalAssets);

// Performance fee assets
uint256 performanceFeeAssets = interest > 0 && performanceFee > 0
    ? interest.mulDivDown(performanceFee, WAD)
    : 0;

// Convert to shares
uint256 performanceFeeShares = performanceFeeAssets.mulDivDown(
    totalSupply + virtualShares,
    newTotalAssetsWithoutFees + 1
);
Source: VaultV2.sol:673-688
Performance fee assets may round down to zero if interest * fee < WAD. This means very small interest amounts may not generate fee shares.

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Management fee

The management fee is charged continuously on total assets, similar to a streaming fee.

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Setting management fee

function setManagementFee(uint256 newManagementFee) external;

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Example

// Set a 2% annual management fee
vault.setManagementFee(0.02e18 / 365 days);
Requirements:
  • Fee must not exceed MAX_MANAGEMENT_FEE (5% annually)
  • Fee recipient must be set if fee is non-zero
  • Interest is accrued before applying the new fee
Source: VaultV2.sol:494-504

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Management fee calculation

The management fee accrues over time based on total assets: 
// Time elapsed since last update
uint256 elapsed = block.timestamp - lastUpdate;

// Management fee assets
uint256 managementFeeAssets = elapsed > 0 && managementFee > 0
    ? (newTotalAssets * elapsed).mulDivDown(managementFee, WAD)
    : 0;

// Convert to shares
uint256 managementFeeShares = managementFeeAssets.mulDivDown(
    totalSupply + virtualShares,
    newTotalAssetsWithoutFees + 1
);
Source: VaultV2.sol:681-690
The management fee is taken on newTotalAssets to make all approximations consistent. Interacting less with the vault results in higher accrued fees.

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Fee recipients

Each fee has a designated recipient address that receives minted shares.

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Setting fee recipients

function setPerformanceFeeRecipient(address newPerformanceFeeRecipient) external;
function setManagementFeeRecipient(address newManagementFeeRecipient) external;

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Example

// Set recipients
vault.setPerformanceFeeRecipient(treasuryAddress);
vault.setManagementFeeRecipient(teamAddress);
Fee invariant: A fee cannot be non-zero if its recipient is the zero address. The contract enforces:
require(
    newPerformanceFeeRecipient != address(0) || performanceFee == 0,
    ErrorsLib.FeeInvariantBroken()
);
Source: VaultV2.sol:506-524

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Fee accrual

Fees are accrued and paid during the first interaction of each transaction: 
function accrueInterest() public {
    (uint256 newTotalAssets, uint256 performanceFeeShares, uint256 managementFeeShares) = 
        accrueInterestView();
    
    _totalAssets = newTotalAssets.toUint128();
    
    if (performanceFeeShares != 0) {
        createShares(performanceFeeRecipient, performanceFeeShares);
    }
    
    if (managementFeeShares != 0) {
        createShares(managementFeeRecipient, managementFeeShares);
    }
    
    lastUpdate = uint64(block.timestamp);
}
Source: VaultV2.sol:648-656

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Accrual timing

Interest and fees are accrued only once per transaction, during the first vault interaction. Subsequent interactions in the same transaction use the already-updated values.
This prevents:
  • Multiple fee charges in a single transaction
  • Flashloan-based manipulation of fee calculations

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Fee impact on share price

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Performance fee

Performance fees are taken from distributed interest, so they don’t reduce the share price—they dilute profits: 
// Without performance fee:
// 100 assets, 100 shares → 1.0 share price
// +10 interest → 110 assets, 100 shares → 1.1 share price (+10%)

// With 20% performance fee:
// 100 assets, 100 shares → 1.0 share price  
// +10 interest, -2 fee → 110 assets, 101.8 shares → 1.08 share price (+8%)

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Management fee

Management fees are taken from total assets and can reduce share price: 
// Management fee accrues even if the vault has losses
// 100 assets, 100 shares → 1.0 share price
// Time passes, 0.5 assets management fee → 100 assets, 100.5 shares → 0.995 share price
The management fee is not bound to interest. It accrues even when the vault incurs losses, which can decrease the share price.
Source: VaultV2.sol:659-660

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Fee rounding

Both fees are rounded down: 
// Performance fee uses mulDivDown
performanceFeeAssets = interest.mulDivDown(performanceFee, WAD);

// Management fee uses mulDivDown  
managementFeeAssets = (newTotalAssets * elapsed).mulDivDown(managementFee, WAD);
Fee recipients may receive slightly less than the theoretical fee amount due to rounding down. This protects users from overpayment.
Source: VaultV2.sol:661

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Viewing accrued fees

To preview fees without state changes: 
(
    uint256 newTotalAssets,
    uint256 performanceFeeShares,
    uint256 managementFeeShares
) = vault.accrueInterestView();
This returns:
  • newTotalAssets: Total assets after accruing interest
  • performanceFeeShares: Shares to mint for performance fee
  • managementFeeShares: Shares to mint for management fee
Source: VaultV2.sol:664-693 Fee recipients must be able to receive shares: 
function accrueInterestView() public view returns (uint256, uint256, uint256) {
    // ...
    uint256 performanceFeeAssets = interest > 0 
        && performanceFee > 0 
        && canReceiveShares(performanceFeeRecipient)
        ? interest.mulDivDown(performanceFee, WAD)
        : 0;
    // ...
}
If a fee recipient cannot receive shares (blocked by receiveSharesGate), the fee is not charged. Source: VaultV2.sol:676-682

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Timelocks and governance

All fee-related changes go through curator timelocks:
1

Submit proposal

Curator calls submit() with encoded function call.
2

Timelock period

Wait for the timelock duration specific to the function.
3

Execute

Call the actual function (e.g., setPerformanceFee()) after timelock expires.
This ensures users have notice before fee changes take effect.

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Best practices

  • Set reasonable fees that align with vault strategy and performance
  • Always set fee recipients before setting non-zero fees
  • Accrue interest at least every 10 years to prevent fee calculation overflows
  • Monitor that fee recipients can receive shares (not blocked by gates)
  • Consider the impact of management fees during loss periods
Source: VaultV2.sol:685

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